Prices did go up before the bailout that's true, that doesn't mean the bailouts didnt play a significant role since. That's a non sequitur

It would show up as inflation if the bailouts played a "significant" role in price increases, because AIG is an insurance company, not an oil producer. But it doesn't show up in inflation. Therefore, I dispute the notion that there was a "significant" impact on prices from the bailout.

That's not a non sequitur, that's a logical argument.

Nah, non sequitur. You conclusion is not based in the preceding logic you presented

I think he presented a pretty good argument that followed a pretty clear and linear logical path. What am I missing?

"Because prices rise before the bailout, the bailout did not impact inflation" is a conclusion that is not logically drawn from the previous statement

I took it as 'Prices were rising before the bailout, and inflation hasn't increased in a significant way since the bailout. I think that shows a trend that the bailout didn't significantly increase rising prices'

Maybe that's logically flawed, and I hate to be an idiot, but I can't see why.

But you included another piece of logic not included in the non-sequitur

I am lost.

I thought the point about food prices historically being more closely tied to oil prices than to inflation was pretty relevant. Did anyone tackle that?

Prices did go up before the bailout that's true, that doesn't mean the bailouts didnt play a significant role since. That's a non sequitur

It would show up as inflation if the bailouts played a "significant" role in price increases, because AIG is an insurance company, not an oil producer. But it doesn't show up in inflation. Therefore, I dispute the notion that there was a "significant" impact on prices from the bailout.

That's not a non sequitur, that's a logical argument.

Nah, non sequitur. You conclusion is not based in the preceding logic you presented

I think he presented a pretty good argument that followed a pretty clear and linear logical path. What am I missing?

"Because prices rise before the bailout, the bailout did not impact inflation" is a conclusion that is not logically drawn from the previous statement

I took it as 'Prices were rising before the bailout, and inflation hasn't increased in a significant way since the bailout. I think that shows a trend that the bailout didn't significantly increase rising prices'

Maybe that's logically flawed, and I hate to be an idiot, but I can't see why.

But you included another piece of logic not included in the non-sequitur

I am lost.

I thought the point about food prices historically being more closely tied to oil prices than to inflation was pretty relevant. Did anyone tackle that?

I'm lost too, if you go back to my original statement I think you will get it, but lets just move on

If the economic conditions should be causing deflation. But the expanding monetary supply is preventing that. Then the FED is causing something like "marginal inflation".

Now why does this matter?

Lots of people are losing their jobs and having to take a lower salary or depend on fixed incomes. In a deflationary environment they money they have saved or can make part time or for less skilled work (work that's below their training or at a lower salary) they can still make ends meet on their own.

Additionally its not like the expanding money supply has no other negative consequences.

But its a plausible hypothesis that the expanded money supply has kept inflation "within normal limits" in an environment where actual wages are being depressed. Big institutions that can tap into the FEDs free money benefit, but a big chunk of the people pay the price.

There may also be some sort of inflation acceleration cliff we head off - its no where near as easy for the FED to pull in the money supply: they can dump bonds on the market, but that will negatively impact Treasury sales of new bonds (still needed to pay debt.) At some point the economy improves enough that labor conditions and capital values bounce back, then we pay a monter price in inflation, which could derail economy.

So I think we are already suffering some of the effects of inflation (food prices are definitely up in constant dollar value) and have set ourselves on a path for a lot more. And I don't think we got much value for that. We still got bad economy, bad labor market, capital valuations crashed, and especially so in the banking sector.

I don't think that's correct, the Bloomberg article at the start of this thread had the total given to AIG at 182 billion.

Read the first sentence, the total commitment was $182 billion, but the article is just about the Treasury, which committed $69.8 billion and disbursed $67.8. The rest came from the Fed. That's also why the profit listed is $5 billion instead of $22.7.

Yeah, that's my understanding.

The big number refers to the equivalent of a credit line, but it wasn't all drawn down. The stuff that was drawn down from the "credit line" was repaid, and then some.

Anyway, the conversation in this thread seems to be all over the place.

If the economic conditions should be causing deflation. But the expanding monetary supply is preventing that. Then the FED is causing something like "marginal inflation".

Deflation is worse than inflation. It encourages people to hoard money (expectation that buying power will continue to go up), and makes it more difficult to pay down debt. It feeds upon itself. The Fed should (and did) do anything that it takes to prevent this, lest we find ourselves looking like Japan.

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So I think we are already suffering some of the effects of inflation (food prices are definitely up in constant dollar value)

I think that this ought to be proven if it's going to keep being asserted. There are an entire host of reasons for food to go up in constant dollar value that have nothing to do with inflation. Droughts, price of oil. Those are two easy, low-hanging fruit explanations that account for the rise in food prices that is NOT seen in general inflation.

If the economic conditions should be causing deflation. But the expanding monetary supply is preventing that. Then the FED is causing something like "marginal inflation".

Deflation is worse than inflation. It encourages people to hoard money (expectation that buying power will continue to go up), and makes it more difficult to pay down debt. It feeds upon itself. The Fed should (and did) do anything that it takes to prevent this, lest we find ourselves looking like Japan.

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So I think we are already suffering some of the effects of inflation (food prices are definitely up in constant dollar value)

I think that this ought to be proven if it's going to keep being asserted. There are an entire host of reasons for food to go up in constant dollar value that have nothing to do with inflation. Droughts, price of oil. Those are two easy, low-hanging fruit explanations that account for the rise in food prices that is NOT seen in general inflation.

I already have multiple times so I guess at this point it's just best to move on

So I think we are already suffering some of the effects of inflation (food prices are definitely up in constant dollar value)

I think that this ought to be proven if it's going to keep being asserted. There are an entire host of reasons for food to go up in constant dollar value that have nothing to do with inflation. Droughts, price of oil. Those are two easy, low-hanging fruit explanations that account for the rise in food prices that is NOT seen in general inflation.

Obviously you can't completely rule out the bailout as directly or indirectly influencing rising costs of food or gas, but I think the above is a point that hasn't been addressed, and I think its a really good one.

Your hypothetical specified the current economic conditions. Deflation in general is not necessarily going to result in a deflationary spiral, but we're living in a time of 1) depressed demand, 2) excess capacity, and 3) debt overhang. This makes deflation extremely dangerous, moreso than inflation.

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There is plenty of support for the other side of the coin in the Austrian and Chicago economic schools. We're not all Keynesians (nor was he by the end of his life!)

Its an argument that people would save more when things get cheaper combined with an argument that consumer spending drives the economy. Of course neither of those are well established.

Could we please discard labels in this discussion? Debt deflation is not even a Keynesian idea.

People surely can save more when prices get cheaper, but deflation also increases the real burden of their debt. We know that debt was high, and savings were low, going into this recession. High debt and lack of savings combine with depressed demand (is there any doubt that demand has cratered?) to make this pretty unlikely. You can't depend on debt-constrained actors to drive consumer spending.

It's an interesting concept academically, but I don't see how it applies to any real-world scenarios.

Your hypothetical specified the current economic conditions. Deflation in general is not necessarily going to result in a deflationary spiral, but we're living in a time of 1) depressed demand, 2) excess capacity, and 3) debt overhang. This makes deflation extremely dangerous, moreso than inflation.

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There is plenty of support for the other side of the coin in the Austrian and Chicago economic schools. We're not all Keynesians (nor was he by the end of his life!)

Its an argument that people would save more when things get cheaper combined with an argument that consumer spending drives the economy. Of course neither of those are well established.

Could we please discard labels in this discussion? Debt deflation is not even a Keynesian idea.

People surely can save more when prices get cheaper, but deflation also increases the real burden of their debt. We know that debt was high, and savings were low, going into this recession. High debt and lack of savings combine with depressed demand (is there any doubt that demand has cratered?) to make this pretty unlikely. You can't depend on debt-constrained actors to drive consumer spending.

It's an interesting concept academically, but I don't see how it applies to any real-world scenarios.

Who cares? Consumer spending doesn't grow the economy. Consumer savings allocates capital to more efficient locations. Bottom line is all your analysis is tied to that Keynesian concept. At this point you and I are going in circles, you keep stating theories as facts then discounting theories as theories.

But - we do know what was tried failed to help. The people helped were the people who made money running up the bubble. This transfered the cost to the tax payers. I believe the money printing will eventually trigger serious inflation as an additional cost. Regardless of those first two points, the bailouts enshrine the concept of too big to fail meaning one of these things:1. the gov't needs to abolish large scale financial institutions (consumers lose b/c they cannot reap economy of scale advantages)2. the gov't is implicitly backing too big to fail companies like GSE, so we'll get more of it.

We're both arguing hypotheticals and theories otherwise - you are saying without TARP things worse, I'm saying TARP didn't make things better and we'll pay a price for it longer term. As CS Lewis might point out: its not for us to know what might have happened.

Who cares? Consumer spending doesn't grow the economy. Consumer savings allocates capital to more efficient locations. Bottom line is all your analysis is tied to that Keynesian concept. At this point you and I are going in circles, you keep stating theories as facts then discounting theories as theories.

This statement and the following:

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As CS Lewis might point out: its not for us to know what might have happened.

Seem to be in direct contradiction with this:

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But - we do know what was tried failed to help. The people helped were the people who made money running up the bubble. This transfered the cost to the tax payers.

In any case, we don't know that what would've happened without the measures taken (TARP, ARRA, etc..), and if I'm not mistaken, there were/are an awful lot of credible allegedly neutral experts on the issue who maintain that without TART at least, things would've been a lot worse. This of course doesn't indulge in moral judgements on the companies, its just numbers.

Who cares? Consumer spending doesn't grow the economy. Consumer savings allocates capital to more efficient locations. Bottom line is all your analysis is tied to that Keynesian concept. At this point you and I are going in circles, you keep stating theories as facts then discounting theories as theories.

This statement and the following:

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As CS Lewis might point out: its not for us to know what might have happened.

Seem to be in direct contradiction with this:

Quote

But - we do know what was tried failed to help. The people helped were the people who made money running up the bubble. This transfered the cost to the tax payers.

In any case, we don't know that what would've happened without the measures taken (TARP, ARRA, etc..), and if I'm not mistaken, there were/are an awful lot of credible allegedly neutral experts on the issue who maintain that without TART at least, things would've been a lot worse. This of course doesn't indulge in moral judgements on the companies, its just numbers.

No we don't know what might have happened.

We do know what happened - we tried all the interventionist tricks and got very little short term gain, but still have the long term pain.

I'll never know if girl2 would have worked out, but I for sure know I'm miserable with girl1. Likewise I don't know that I'm marginally happier with girl1, cause things would have been even worse with girl2.

I'm saying we'd have been better with girl2: not intervening, following normal rule of law to deal with bankruptcy. And I admit I don't know it, it's a theory.

The other argument is: well girl2 would have been even worse (no TARP would have been even more bad.) But just like above we can't know that.

What we do know is married girl1 and life sucks.

And for the record I was anti bailouts from the start (Bear Stearns bailout, but even airline bailout in 2001.) They just don't work.

What of it? A car doesn't go anywhere without gas. You said yourself that consumer spending drives the economy, but if consumer spending is curtailed (unemployment, people paying down debt), how does capital get efficiently allocated?

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Bottom line is all your analysis is tied to that Keynesian concept. At this point you and I are going in circles, you keep stating theories as facts then discounting theories as theories.

Where exactly does my analysis fall apart? It's based on observations that are well-grounded. For example:

- Demand is depressed. My favorite indicator are the business surveys that back up this idea; lack of sales has overtaken even the perennial "I am taxed too much" complaint.- Excess capacity. We have nearly 8% unemployment. More if you count the part-timers.- Debt overhang. Look at any household debt chart and see the massive climb as we approach 2008. It is slowly coming down, as people pay down debt.- Lack of savings. Look at any chart you care to. Savings as a percentage of disposable income has been on a basically steady decline since the 80's, It spiked up during the "oh my god we're all going to die" phase of the financial crisis.- Significant inflation is not happening. Even if you don't trust the government statistics, it's impossible to hide inflation since prices are public. Non-government organizations are supporting the official statistics. Food and oil prices are a false indicator.

Maybe this means that reality has a Keynesian bias, but I'm following the bread crumbs here. The idea of debt deflation, as I said, is not even Keynesian: that's Irving Fisher, the guy who lost his pants in the Crash of '29. For better or for worse, it appears that he still had a point.

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But - we do know what was tried failed to help.

This is the notion that I'd dispute. How does one "know" that it didn't help?

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I believe the money printing will eventually trigger serious inflation as an additional cost.

It has been four years since TARP, and the start of the Fed's extraordinary interventions. We've not had runaway inflation yet. Is there some threshold of time passed, upon which it's reasonable to come to the conclusion that increasing the monetary supply does NOT necessarily cause inflation?

We appear to be right in the midst of a pretty good experiment, don't we? If inflation never materializes, and the Fed destroys the excess money once the economy recovers, does this mean that the argument can be settled forever?

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Regardless of those first two points, the bailouts enshrine the concept of too big to fail meaning one of these things:1. the gov't needs to abolish large scale financial institutions (consumers lose b/c they cannot reap economy of scale advantages)2. the gov't is implicitly backing too big to fail companies like GSE, so we'll get more of it.

I don't agree that someone can look at what happened here, and come to the conclusion that a government takeover of their institution is a good backstop plan. Gov't response was scatter-shot (some died, some lived), and politicians (channeling the taxpayer) demanded all sorts of restrictions and strings attached (for things like compensation), such that everyone and their uncle wanted out as soon as possible.

Never said consumer spending drives economy. I said that's the mistake in your premise.

I only used the term because you did. "Substantiated beyond all doubt" is not a realistic bar to reach.

Even if we were to grant that consumer spending doesn't grow the economy, it's certainly a part of growing it: at the most basic level, companies need business in order to make profitable expansions. Never mind that consumers aren't the only debt-constrained actors in this environment.